Over the past several months lenders have been tightening their underwriting standards in both personal and business loans. We’ve seen a major insurance lender place a moratorium on all new financing and requirements from lenders are more demanding than ever. Many insurance agency loans are done through “insurance banks”. There are two ways to borrow from an “insurance bank” for insurance agency purchases. The first way we’ll discuss is
using the book you’re buying as collateral. This option requires the seller to go through the lending institutions due diligence as well as the buyers. The bank will take the sellers commission statements, taxes and other pertinent information and formulate a loan amount. Sellers are sometimes apprehensive to go through this process because there’s no guaranteed loan amount until the bank completes its due diligence and investigates the buyers credit and background. There a lot of factors that can go wrong in this process.
The other option is to borrow against your own book. Sellers prefer this type of buyer because the buyer is prequalified. Let’s face it, if you have 2 offers relatively close to one another – one client has a check in hand and the other might be qualified in 60 days, it’s obvious who wins. In addition to this, chances are the prequalified buyer will pay less for an agency than a non-qualified buyer will.
If you’re an agency buyer and own a book, borrow against your own. You can provide your information to a bank and have a prequalification letter in hand within days. You’ll have an advantage when making an offer because your funding is already available. There’s an enormous difference between, wanting to buy an agency and being able to buy an agency.
Lastly, if you don’t own a book and want to borrow for an aquisition you can make it work. Hopefully you have some background in the industry, licensing and relationships with the insurance carriers sold by the acquisition candidate. We’ve seen agencies like this close, but can be a challenge to put together.
We have several references for financing insurance agency acquisitions for both exisiting agency owners and individuals.
Contact us so we can review your particular situation and refer you to a lender that can cater to your needs.